First Milk secures £130m to support capital spending

Published on Monday 31 August 2009 21:17

FIRST Milk, the Glasgow-based dairy farmers co-operative, has secured £130 million of funding in the largest deal of its kind so far this year in Scotland.

Barclays Commercial Bank and Lloyds TSB Commercial Finance put up the asset-based lending, which will secure further working capital for the co-op and allow it to embark on capital investment.

Capital projects include the building of a replacement creamery in Campbeltown, further investment in the company's cheddar brands and upgraded packaging.

First Milk – which is the UK's largest indigenous cheese maker and supplies about 17 per cent of Great Britain's milk – needs the additional working capital to handle a further 250 million litres of milk a year.

The additional milk comes from 450 farms that First Milk hopes will join its existing 2,500 members from rival co-op Dairy Farmers of Britain, which fell into receivership in June.

The extra production will take First Milk's total milk output to 1.8 billion litres a year, supplied by farmers spread across the Central Belt, the south of England, Wales and East Anglia.

Jim Maguire, First Milk's finance director, told The Scotsman: "Either processing the extra milk ourselves or selling it on creates a substantial working capital requirement for the business.

"For example, making a chunk of that milk into cheese requires finance for the cheese stocks."

Maguire said the co-op was investing in the branding of its Lake District Cheese Company and had received national listings from Asda, as well as a recent "special offer" listing in Tesco.

First Milk's other brands include Scottish Pride, Pembrokeshire Cheese, Isle of Arran, Isle of Bute and Mull of Kintyre.

Maguire added: "The demise of Dairy Farmers of Britain has been positive for First Milk. It's allowed us to take on an additional 250 million litres that gives us further economies of scale. It's brought much-needed rationalisation to the market as well."

In June, First Milk announced it had sold its existing creamery in Campbeltown to Tesco, which will create 200 jobs when it opens a new store on the site.

The co-op's new creamery in the town will be built with a 3.9 million grant from the Scottish Government and will secure 100 jobs and business for 42 farms.

In the year to the end of March 2008, the co-op grew turnover by 24 per cent to 602m, with a pre-tax profit of 3.5m, compared with a loss of 2m in 2007. Results for its past financial year are expected later this month.

Maguire said the dairy markets had suffered "a lot of downward pressure" since the last set of results were published and that margins were squeezed.